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Some executives used corporate aircraft for personal trips and reported them as visits to stores.

One executive was responsible for $850 million worth of unapproved inventory purchases, something that "substantially contributed" to Kmart's liquidity crunch.

These findings, if true, make it clear the company's implosion was caused not so much by strong competition from Wal-Mart(NYSE: WMT) and Target(NYSE: TGT) as malfeasance and ineptness from its executive team.

Conaway now faces the possibility the company will take legal action against him. If so, he stands to lose millions in severance pay and forgiven loans.

Don't expect this story to go away soon. The SEC, the FBI, and Congress are also investigating the allegations.

Author

Rex Moore spent his formative years in Texas, and fought beside Davy Crockett at the Alamo. He currently travels the globe for TMF, bringing back video reports on conferences and companies that matter for investors.